Sunday, October 9, 2011

Ellen further asks if MMTers agree with Milton Friedman: "'Inflation is always and everywhere a monetary phenomenon."

Again, not being an MMT intellectual forefront leader, what I can put in here is my own interpretation, as influenced by MMT. I think inflation is a phenomenon caused by more demand than supply for a certain or all goods. I believe nominal inflation can be greatly caused by the amount of money in the system because everything is bought with money. But for the most part, there should be increasing demand for the thing being bought over its supply.

A phenomenon caused by more demand than supply for a certain or all goods

What causes an increase in aggregate demand? Increase in aggregate income, which should come as a consequence of creating jobs that produce sellable goods. It is income which creates the demand for the goods being produced by the jobs created. So income should not come by itself as a handout. It should come as a byproduct of a labour force able to find jobs when they are truly looking. Neither should jobs being created provide insufficient income to the jobholder, otherwise, demand will not be sufficiently restored. Of course, each job created must also be productive to society, because income created without the commensurate increase in productivity only leads to a supply shock. A supply shock here is a sudden shortage of supply vi-a-vis demand. If demand increases while supply remains stagnant, the supply shock will lead to goods inflation.

Nominal inflation can be greatly caused by the amount of money in the system because everything is bought with money

I would take exception to the position that nobody notices when the government adds zeros to the currency. This cannot go unnoticed in a global world. For example, the Canadian dollar is at equal parity with the US dollar. Suddenly Bernanke decides to put an additional zero to the US price level. Now the US dollar will be worth 10 Canadian cents. People will notice, and Americans will strive to flee to the Canadian currency ahead of such a move.

But for such a price level move to be effective, if Bernanke were ever to be mad enough to do it, will have to be done by tweaking the exchange rate value of the currency. To do this, Bernanke will have to be ready to print as much as necessary to add the zero to the price level, not just say he's adding a few hundred million to bank reserves. Reserves have nothing to do with how much banks will lend, and does not determine whether and how much inflation can happen. Banks will lend when they want to lend, whether they already have the reserves beforehand, and even if they can’t get at any more new reserves, will securitize if they have to.

Central banks cannot fully control the money supply if they will only target a particular money supply level, because private loan demand and government spending is what primarily increases it. But if Bernanke will target the price of US dollar relative to other currencies, he can definitely increase inflation. The risk here, as I mentioned, could be a general loss of faith in a currency, and mass flights out of it. You cannot just arbitrarily change the value of your currency or people will not trust it enough to hold it.

For the most part, there should be increasing demand for the thing being bought over its supply

But if the challenge is increasing demand, as is the case in the US right now, you have to address several factors. A few things that put a limit on demand at the individual level are level of current income, level of current expenses, current level of indebtedness, capacity to service existing debt, capacity to borrow more-to financing more spending, confidence in stability of future income, expectations about future increases in fixed expenses, confidence in future value of purchasing power of current savings (if you have any), non-existence of any lender calling on your debt, confidence in future positive value of existing savings/investments/net worth, ease of liquidating current savings –to finance current spending, tax implications of using current income/net worth to spend now vs. later, confidence about over-all economy, and how it is being run… the current condition on many of these factors indicate there will be disinflation or deflation rather than inflation.

The conventional monetary theory is that if you increase the stock of money, this increases the price level, holding everything else constant (MV=PQ). Further, if you increase the money stock, this causes people to not want to hold on to money, passing it along like a ‘hot potato’ to the next spender by quickly spending it before it loses value (due to inflation). But the end result could just as well be a decrease in velocity. The resulting high prices could just be that the increasingly few transactions are clearing at the ever increasing price. If the money stock keeps increasing, this supports an increasing price level even though the velocity and the volumes may already be decreasing.

And the same stock of money flowing more quickly should not in itself lead to higher price levels unless people are bidding up the prices while getting rid of money. But people can only bid higher if they already have more money to pay with. This necessitates a growing money stock. But how do people get to more money? By earning it or by borrowing it. Whether you earn it or you have to borrow it, sufficient income prospect is the more important consideration than increasing nominal values. But higher nominal values will only happen AFTER people already have in their hands the higher money stock level to buy more dearly with, not when it's still in banks as newly-created reserves.

Inducing inflation via rising inflation expectations cuts both ways and may end up just a wash. If a lender is going to lend to a borrower to buy goods now, with rising expectations it's now going to lend him at the rate that incorporates the higher inflation expectations for next year. So the higher borrowing rate effectively offsets the value of buying today vs. tomorrow. And if sellers and owners know that inflation will be higher next year, they won't sell their wares and properties now. Or they will sell their wares at a price that reflects the higher inflation. Intentional buyers may end up not wanting to buy anymore.

I think it depends on the specific circumstance whether Friedman is correct or not. Perhaps when he said it, increasing the money supply easily increased inflation. I think he said that prior to the 1971 abandonment if the gold-dollar peg. It didn't take much printing to increase inflation. This was also a time when bank lending was still growing from a small starting baseline.

Now people are over-indebted, we are in balance sheet recession, and banks are already reluctant to lend. The dollar-gold standard has long been abandoned, and the Fed stands ready to lend banks all the reserves they need, and has in fact, already exchanged their treasury holdings for reserves. Nowadays, you can no longer easily say that increasing the money supply will increase inflation, at least if by money supply you mean reserves. The only way to increase inflation is to explicitly devalue the currency, a la Zimbabwe or Ghana. Now is this an experiment worth the consequences to prove Friedman was right?

28 comments:

Friedman's quote is an assertion of the quantity theory of money, with which MMT disagrees.

MMT accepts the stand economic definition of inflation as a continuous increase in price level. Relative price increases in some sectors do not count as inflation in this definition. This means that rises in prices without a rise in the price of labor (wages) is not "inflation" in the economic sense.

MMT distinguishes two kinds of inflation. The first is demand inflation that results from effective demand exceeding the ability of the economy to expand to meet it. According to functional finance, this is to be addressed through fiscal policy that reduces effective demand by withdrawing net financial assets by increasing taxation

Historically, excessive effective demand from excessive money creation has resulted from excessive credit extension. There is no correlation of inflation directly with the monetary base, MMT holds, because there is no money multiplier, i.e., no causal mechanism of transmission from reserves to lending.

The opposite of this is unemployment, which shows that effective demand is too weak to support economic capacity. The antidote is increasing effective demand by injecting net financial assets through deficit expenditure.

The second type of inflation is supply inflation that results from shortages of economically vital materials like petroleum which affect the entire economy as their consequences spread.

This type of inflation must be addressed differently from that resulting from excessive demand due to excessive money creation. Supply shortages need to be addressed by buffers, reducing the shortage through alternatives, substitution, and conservation.

In extremis, like war time, then wage and price controls and rationing may be needed, as well as increased saving through war bonds. This is was reasonably effective in the US during WWII, for example, in spite of sporadic black market activity.

. . . demand exceeding the ability of the economy to expand to meet it.

And demand can only be expressed as the amount of "money" the buyer is willing to trade for the good or service. As you say, reducing the amount of money in the economy will reduce demand and with it inflation -- as Friedman would doubtless point out.

Two ways of reducing the money supply -- negative bank lending and government surpluses.

Monetary base is irrelevant to discussion. It's probably not even money.

"Net financial assets" -- slippery, aren't we. I thought we were talking about money. Try paying for your next fill-up with a 30-yr UST.

And what he doesn't mean is "money," the subject matter of the blog entry.

N.B. "Money" is an M, excluding MB. If I had to choose one of them, it would be MZM. But for my purposes it's the direction of M, its increase/decrease and the rate of change that's important. And excluding MB, the several Ms generally move in the same direction.

Ellen, both your and Tom's definition are part of what money is. You focus on its changing quantity, Tom focuses on where it comes from.

In our times of high debt, and debt deleveraging, it's also now very important to know how money comes about. Is it borrowed, or printed into existence, or is it structured synthetically? That way you know if that new money is increasing your savings, sinking you in debt, increasing or taking away from your future earnings, will rip your face off, or will blow the whole system up.

Hickey's just plain wrong if he thinks his "net financial assets" are "money" -- as are you if you agree with him.

I don't know what the two of you think "financial assets" are -- that is, what types of instruments are included in the category -- but I'm fairly confident it doesn't include "money."

"Money" is cash in my pocket and any claims I currently hold which can be converted into George Washingtons in a very short time, say a day or so.

Which gets us back to your also being wrong in thinking that the United States Government, under current law, can create money.

All the USG does is take money from some people (taxes and bond sales) and pass it on to others -- for good or for ill.

I am, though, struggling with analyzing the effect on the money supply when a bank buys a UST directly from the government.

As economists, MMTers included, point out, money is created when a bank makes a loan. Would the same thing be occurring when a bank buys a UST directly from the government?

In that case the bank has written a loan to the Treasury which the bank paid for with "reserves" ** -- which I hope we all can agree aren't "money". The debit the government receives will be used to settle its checks. And the "money" represented by those checks in the hands of the payees didn't exist prior to the bond sale and is, thus, new money which increases the money supply.

Which is our current problem. Bond auctions have been oversubscribed by the public for years. Presumably, banks aren't buying USTs from the government, and everyone who is is giving up their "money" to buy the bonds -- and thus, reducing the money supply in the same amount as the government increases it -- a wash.

** But do banks pay for asset purchases from the government with "reserves"? They don't when they buy the bond from me; payment's coming out of the bank's cash account or a bank exec is going to jail.

I see you're still insisting that people borrowed into existence all the money that the government then afterwards borrowed from them. Since you're still bringing up previous objections, I'll bring up old responses.

What happens when everyone who earned income via the multiplier effect of the fiscal spending suddenly simultaneously decide to withdraw their money from the bank? The bank gives them their money. The money comes from their deposit holdings in the bank, and not as borrowings from the bank. So where does the bank get the money/reserves to pay those people who decide to withdraw into cash? It gets it from the government/Fed.

Because the fiscal multiplier effect gave people income, they do not have to borrow the money from the bank anymore to get cash. If you have income from selling to your service to the government, or by selling it to someone who sold his service to the government, neither one of you have to go and borrow the money from the bank to buy your Jimmy Choos. The money supply increased without further borrowing. Jimmy sold shoes without anyone going into debt.

Where did the money come from that the government was able to borrow? If it was, as you say, already just sitting idle in deposit accounts, what gave rise to that deposit? Somebody else borrowing to give that depositor his money? So how is that borrower then getting the money to be able to pay back his own loan? From a further third person borrowing it as well? And how is that 3rd person getting the money to pay back his own loan? And so on to infinity

I think too many folks are drawing the wrong conclusions from the MMT observation that in a fiat money system all money is -- and here's the critical conditional -- where no self-imposed restraints exist -- created by the government.

But that's not the situation in the U.S. of A. Here, the ability to create money has been passed to the banks, and the government has constrained itself to spend no more money than it is able to raise via taxes and borrowings.

And that's why deficit spending in the U.S. is never -- never -- inflationary,* because it doesn't increase the money supply.

* Note. To the extent that government spending increases economic activity and confidence and that confidence leads to an increase in public sector borrowing, the money supply will grow. If that growth exceeds the economy's productive growth, then, that excess will generate inflation.

In the end Friedman's "everywhere and always" is probably wrong. Most inflation we've observed over the past forty years has been the product of exogenous activities produced by currency speculators, commodity oligopolists and hoarders, and various domestic rent seekers -- not by increases in the money supply.

No, you’re only starting to irritate me with your hardheadedness. I get it that you don’t want to believe me. And though our exchanges could provide me with posts for the entire next year, I’m not really much into repeating myself over and over.

Ellen: “It gets it from its vault,”

That means the no loan is made to make this money exist.

Ellen: “That currency coming in the back door is a loan from the government”

No. If you withdraw your deposit from the bank, the bank doesn’t have to borrow it elsewhere. The bank already has the money because you already put it there, or someone else put the money in your deposit. The only time it has to borrow it elsewhere is if it already lent your money elsewhere and needs the reserves to pay it back. If it’s a deposit, it’s already a deposit. If you don’t believe me, go ask your local bank.

Ellen: “Nope; just until the crash when the money supply contracts sometimes”

Yes, in your world where everything is a loan, everything will crash one day. That’s an inevitability. Fortunately, that’s not the world the rest of us live in.

Ellen: “nevertheless, the statement needs proof”

Yes, because your statement is just one massive assertion.

Ellen: “The ability to create money has been passed to the banks, and the government has constrained itself to spend no more money than it is able to raise via taxes and borrowings.”

Then how is government able to build today’s massive infrastructure projects when at the very beginning, it started off with just 1776 money supply? Where did those trillions of additional money come from?

Ellen: “To the extent that government spending increases economic activity and confidence and that confidence leads to an increase in public sector borrowing, the money supply will grow.”

No, confidence by itself does not make dollars magically appear in someone’s bank account. Neither does it make someone who didn’t have an iota of cashflow any more creditworthy.

Ellen: “Most inflation we've observed over the past forty years has been the product of exogenous activities produced by currency speculators, commodity oligopolists and hoarders, and various domestic rent seekers –“

My statement about synthetically produced money probably suggested that to you, but it doesn’t mean government spending doesn’t contribute to money supply. All the actions of private speculators are not always enough to create the money needed for a space program, or for a nuclear armament program.

Of course "no loan is made"; the money already existed; it was in the customer's demand account (M1 in your example). The bank closed the account and handed the customer vault cash.

No, confidence by itself does not make dollars magically appear in someone’s bank account.

Right you are; it requires a confident borrower to meet up with a confident banker -- and once that happens, "dollars magically appear" in the borrower's bank account. Or at least as magically as entering a few numbers on a keyboard must appear to a kitchen table economist.

All I'm saying is that the meet-up is more likely to take place when society is confident than when it is frightened -- and the government's spending, although it doesn't increase the money supply, does increase economic activity and thus, leads to an increased sense of confidence economy-wide.

Where did those trillions of additional money come from?

How many times do I -- and all thinking MMTers -- have to say this. The money came from bank lending.

All the actions of private speculators are not always enough to create the money needed for a space program, or for a nuclear armament program.

Who said anything about speculators creating money? And there's always plenty of money in the money supply to finance a space program or a nuclear armament program. The government need only offer a high enough interest rate to get folks to part with that money.

Ellen: "All I'm saying is that the meet-up is more likely to take place when society is confident than when it is frightened -- and the government's spending, although it doesn't increase the money supply, does increase economic activity"

Society doesn't become more confident without an increase in what Tom calls net financial assets. Without this, there's no increase in demand. Without increasing demand, no increasing aggregate sales, no additional borrowing. It's as simple as that. Confidence by itself is just hot air.

Ellen: "How many times do I -- and all thinking MMTers -- have to say this. The money came from bank lending."

You consider yourself an MMTer? Send me links of where MMTers say that ALL money came ONLY from bank lending, and NEVER from government spending. Without these links, you're just muddying the message and making their plan look like the monetarist plan of relying on increasing confidence due to rising nominal money supply.

Ellen: "The government need only offer a high enough interest rate to get folks to part with that money."

You think you can offer a high enough interest rate to induce folks currently on food stamps to buy more government bonds? What about businessmen now losing sales, what interest rate will make them buy up more bonds? How about those with negative equity, how much you think you can sell to them if we double the current rate?

The fact that no money is created when the government takes money from one holder (the bond buyer) and gives it to someone else (an obligee of the government) is so selfevident that I doubt very much any MMter has thought it necessary to comment upon it.

You think you can offer a high enough interest rate to induce folks currently on food stamps to buy more government bonds?

No; but you never could nor could you get failing businessmen to buy them. But that still leaves plenty of money in the hands of people who will buy the bonds -- if the interest rate is high enough.

No Ellen. That deposit is merely the liability side of the bank's IOU, the asset being the loan, which you or whoever took the loan out has to pay back with interest. That deposit only really becomes "money" when the Fed increases the amount in said bank's account later on (a gov't spend). See Dr. Wray's answer to questions #7 and #9 here:http://neweconomicperspectives.blogspot.com/2011/09/government-and-private-ious-denominated.htmlThe HPM (high powered money) comes from the Gov't. The reason this is so is because if you took out a loan for say, $1000, and you needed it in cash, the bank can only fulfill that need with the Fed's IOU which comes from their account at the Fed. The deposit is just another private sector IOU that the Gov't ensures is convertible into the gov't money of account (currency).

Ellen: "Now, if we only knew what's included in that slippery, meaningless phrase. Probably, he'd include money, but then, who knows."

That phrase happens to mean money that people can actually spend, not the meaningless money gibberish that you subscribe to that no one owns or can spend.

Ellen: "And deposits are -- wait for it -- money."

Yes, deposits are money, but not all money is a deposit. This is a crucial difference. if you conflate the two, you might as well call all those printed but as yet unissued notes just waiting at the mint money. But no one can spend it. What about all those notes returned to the central bank ready for shredding. You would call them money. But who cares? No one can spend it anymore.

Ellen: "The fact that no money is created when the government takes money from one holder (the bond buyer) and gives it to someone else (an obligee of the government) is so selfevident that I doubt very much any MMter has thought it necessary to comment upon it."

Because the more important process is when the money was created that eventually went to that holder. But then you're one to believe that the first egg magically appeared that became the first chicken.

Ellen: "No; but you never could nor could you get failing businessmen to buy them. But that still leaves plenty of money in the hands of people who will buy the bonds -- if the interest rate is high enough."

Yes, and make the few people who have hoarded all the money even richer. And still believe that all this costly borrowing of the government still does not increase money supply for everybody else. In your world, it would just be better if government would cease to exist. Why even bother?

No Ellen. That deposit is merely the liability side of the bank's IOU, the asset being the loan, which you or whoever took the loan out has to pay back with interest.

I don't know what "No Ellen" refers to. The condition of the bank's balance sheet or mine has nothing to do with the issue of 1) whether I got "money" I didn't have before and 2) whether in giving me the money, the bank increased the nation's "money supply". As far as Dr. Wray and I'm concerned, that money is new; it's now out there in the economy (part of the money supply); and will remain out there until it's destroyed by my act of paying off the IOU -- days, weeks, months, years in the future, indeed maybe never.

That deposit only really becomes "money" when the Fed increases the amount in said bank's account later on (a gov't spend).

An utterly uninteresting remark. No one argues that the government doesn't back the currency via the Constitution and statutory law. The question is who creates "money." Dr. Wray says it's the banks; being the Monetarist* you are, you're compelled to say it's the government acting by way of the Fed adding points to the scoreboard -- that is, accounting for reserves. When the bank lends, the Fed will/must add the points. Here's Dr. Wray from the blog you linked to: "the Federal Reserve has little or no choice about accommodating that demand...[for reserves]". The Fed is nothing but a scorekeeper, a dog's body.

* He who mentions HPM without immediately denigrating its significance in practical monetary theory is a Monetarist.

In early 2009 the Fed was closing down the series of emergency funding programs it had initiated in the fall of 2008. As good monetarists, the Fed was convinced that this contraction in its balance sheet would lead to a decrease in the money supply. So it embarked on QE1 -- buying mortgages and MBS securities. And it was successful; it's balance sheet even swelled a bit.

HPM, eh Marley? Did the Fed's actions increase the money supply?

Those sellers who were investors took the money and bought other investments -- a wash. Those, the vast majority, who were using the mortgages and MBSs as collateral took the proceeds and paid off their loans destroying the money they'd just received -- a wash.

A trillion dollars of Fed printed "money." Any of it get into the money supply? Nope. So much for the idea that the Fed creates money by jacking up MB (High Powered Money).

Hmm. Well, if he meant "money" why didn't he say "money." I suspect the answer to that question is that Marley operates without a useful definition of the term "money." But he doesn't want to appear a total naif, and thus, throws around a phrase which though weightless sounds impressive.

. . . notes returned to the central bank ready for shredding. You would call them money.

No, I would not -- whatever made you think I would. Indeed, and assuming those notes are not being returned in exchange for fresh ones, I consider those notes to have been destroyed (they've stopped being money) and the money supply reduced in the amount of the notes.

Because the more important process is when the money was created . . . .

You've got that right. Now, all you have to do is recognize who created the money.

. . . and make the few people who have hoarded all the money even richer.

Don't assume that because I recognize what the facts are that I approve of them. My personal view is that we need government deficits most of the time and that the government should simply write checks to be honored by the central bank -- no borrowing and no making rich people even richer. How's that for being a radical MMTer?

Although I haven't thought this out fully, I'd like to see bank lending limited to deposits. The task of increasing the money supply as required by a growing economy should be taken away from the banks and given to the government.

For the trillionth time, it's to distinguish how that money came about, some are borrowed into existence, some are government spent into existence. Net financial assets are 'money' the private sector has that was government spent into existence.

Ellen:"No, I would not -- whatever made you think I would."

Because you don't make any distinctions of how specific money came into existence. I had suspected money to you was the paper note itself.

Ellen:"Now, all you have to do is recognize who created the money."

For the quadrillionth time, both banks and government can create money. it can be lent/borrowed into existence, or government spent into existence.

Ellen:"I'd like to see bank lending limited to deposits. The task of increasing the money supply as required by a growing economy should be taken away from the banks and given to the government."

Then in your world, no new money will created at all. If bank lending were limited to deposits, all loans will have to be callable at any time when the depositor demands his money back.

You're misconstruing MMT. If the government deficit spends without borrowing the money supply will increase.

. . . all loans will have to be callable . . . .

Not necessarily. The bank keeps some deposits "unloaned" -- reserves if you will. And bank runs are a thing of the past; nevertheless, a bank subject to a run can borrow from other banks or the Fed.

When speaking of money we have to force ourselves to think economy-wide -- not look myopically at a single bank.

In your example a depositor takes money out of Bank A. Presumably, s/he has a purpose in doing so. S/he likes Bank B better and transfers her loyalty. S/he buys a new car. In each case another bank will wind up with a new deposit and have the funds to loan to Bank A if its reserves are inadequate.

Ellen, I'm beginning to believe I'm discussing with a demented fool. You're now turning on me my arguments against you from up to five posts back.

Stop this, and stop calling yourself MMT. Dr. Wray will be aghast at your misrepresentations of MMT in your comments here going back to those last 5 blog posts. Even I don't call myself MMT because i know I have some minor differences with their recommendations, but if you're going to keep posting these nonsense and call it MMT, I'm going to start deleting your comments. It's not fair to MMTer's efforts, and it's not helpful to those trying to learn it.

@Ellen: I think I see where you are trying to split hairs here - especially because of the "Monetarist" jibe. Subscribing to the belief that it is the Gov't who creates money is not tantamount to saying that "the Central Bank can exogenously control the money supply" - which is the Monetarist point of view - and which any MMT proponent would refute. From the MMT point of view, the supply of money is determined endogenously by the level of GDP. W.r.t. using the the term "HPM" - it was YOU who brought the idea of money supply to the discussion in the first place, and I explained many posts ago or perhaps in the other blog entry that the whole notion of a "money supply" does not hold a prominent place in MMT. However, in denoting the MMT explanation of private sector IOU's denominated in the gov't money of account vs. Gov't IOU's, you can draw a parallel between the various "monies" described in traditional central bank monetary policy - money/monetary base or outside money, for example, are other terms used for HPM. The point is: the money that ultimately matters is the Gov't IOU. All other monies have value by virtue of being convertible into this IOU. Even if you say that the Fed is merely a "dogs body", then the alternative is less attractive - having nothing but a dog's head on a leash. Indeed, it is the Fed's money that gives the economy "legs" - pun intended. Without those Fed keystrokes, a Bank IOU has no real value. And remember, ONLY the Fed acting as the Govt's bank can enter those key strokes. Banks create the elastic demand for "money", but it's the Fed (Gov't) and ONLY the Fed that actually creates the money.

With respect to your understanding of QE1, I think most would beg to differ on your reasons as to why it was done and your conclusions. Lest I misrepresent MMT inadvertently, I'll again to defer to the writings of Dr. Wray:http://www.nakedcapitalism.com/2011/09/randy-wray-helicopter-ben-%E2%80%93-how-modern-money-theory-responds-to-hyperinflation-hyperventilators.html

"Let us first deal with the helicopter story. In the aftermath of the financial collapse of 2008, the US government (Fed plus Treasury) spent, lent, or guaranteed to the sum of $29 trillion to save Wall Street. (That, in itself, is the story of the century; but it will have to wait for another day.) What concerns our hyperinflationary hyperventilators is the record increase of bank reserves—created as the Fed lent reserves, purchased toxic waste assets, and bought Treasuries from banks. The Fed makes purchases and lends by crediting banks with reserves (the Fed’s liability) in exchange for an asset (either the bank’s IOU, or the asset sold by the bank to the Fed).

Most of this occurred during QE1 and QE2, undertaken in the Fed’s misguided belief that it could pursue a “quantity target” (increasing reserves) rather than simply a “price target” (low interest rate) to stimulate the economy. (That too is an amazing story of self-deception, to be told another day.) It didn’t work."

You got me Ellen ... ;-) I knew that was a poor choice of words. How about "banks satisfy the elastic demand for money by offering their IOU's denominated in the Govt's money of account"? Better?I don't think the HR analogy is a good one. I'll try to come up with a good answer for that another time. Cheers.

Search This Blog

"Conventional approaches, unconventional conclusions" on the global finance and economic issues of the day. Rogue Econ has been a banker and financial consultant in several countries. Welcome to my blog.